Financial planners name best ways to spend a tax refund | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Tax refund season can feel like a rare financial exhale. But for millions of Americans, that money is not “extra” cash. It is a lifeline.

The IRS reported the average federal refund for the week ending March 6, 2026 came in at $3,676, up 10.6% from the same point last year. New deductions introduced under the One Big Beautiful Bill Act, including breaks for eligible seniors, qualified tips, and overtime income, are partly driving larger refunds for some filers this season.

But a bigger check does not always mean a better outcome. How you deploy it matters far more than how large it is.

What Americans are actually doing with refunds

Nearly half of filers, 46%, say they are relying on getting a refund this year, up from 42% last year and 40% in 2024, according to a LendingTree survey. Two-thirds say the refund is very or somewhat important to their financial situation. More than half say they would need to spend it within a month of receiving it.

The top planned uses tell a sobering story. About 34% of filers say they plan to use at least part of their refund for everyday expenses such as groceries, rent, or bill. Another 34% plan to put it toward paying off debt. About 32% plan to save at least some of it.

Robert Jackson, 33, a server at two restaurants in St. Petersburg, Fla. and father of three children under 10, captures the reality many households are navigating. “Refund time has always been a survival thing,” Jackson said. “I feel like I’m paralyzed half the year, waiting on these taxes to come in.”

This dynamic is not limited to lower-income households. The LendingTree survey found that even among those earning $100,000 or more, 70% say their refund still matters to their financial picture.

What financial planners actually recommend

The experts are consistent in their guidance, even if the specific priority depends on your situation.

If you are carrying high-interest credit card debt, that is the first place the refund should go. Paying down expensive revolving debt cuts future interest costs, frees up monthly cash flow, and reduces the risk that one unexpected expense triggers a longer financial spiral. That is the view of Patrick Yaghoobians, a certified financial planner and founder of Noor Planning.

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If your debt is manageable but you have no emergency fund, building one is the next priority. Most planners recommend three to six months of living expenses, but even a modest cushion makes a real difference when an unexpected bill hits.

“Any time you’re receiving a lump sum of money, such as a bonus, inheritance, or tax refund, I think it’s important to make a plan for how you want to use those funds, and, importantly, how you should use those funds,” said Scott Oeth, CFP and principal at Cahill Financial Advisors in Minneapolis. Without a plan, he warned, it is easy for the money to slip away or go toward impulse purchases.

For those whose bills, debt, and emergency savings are in reasonable shape, the refund opens the door to longer-term goals: contributing to a retirement account, building a sinking fund for irregular expenses, or pursuing a specific financial objective that has been on hold.

How financial planners rank the best uses of a tax refund:

Pay off high-interest credit card or personal loan debt first, where rates can exceed 20% annually
Build or top up an emergency fund covering three to six months of living expenses
Contribute to a retirement account such as a 401k or IRA, especially to capture any employer match
Put it toward a specific savings goal such as a down payment, irregular expense fund, or education savings
Set aside a small portion, even 5%, toward a personal goal to build positive financial habits

A tax refund doesn’t have to be spent on one thing: it can be divided among several priorities.

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A split strategy can work too

You do not have to choose just one use. For many households, the best approach is to allocate the refund across several goals at once. A portion to debt, a portion to savings, and a smaller portion to a near-term personal priority can all coexist without undermining each other.

“Small steps can help build momentum and create better financial habits over the long run,” Yaghoobians said. Even setting aside 5% of a refund can add up and make a meaningful difference down the road, he added.

Why a bigger refund is not always better

It might feel like a win to get a larger check from the IRS, but a big refund can actually signal a problem. It typically means too much tax was withheld from your paycheck throughout the year, meaning you effectively gave the government an interest-free loan.

“Those dollars could have been accruing interest for you in a high-yield savings account,” Oeth said. Money sitting with the IRS is money not working for you.

That said, for people who struggle to save throughout the year, the forced-savings effect of overwithholding has real value. A lump sum once a year is easier for some households to deploy strategically than smaller amounts spread over 12 months.

The IRS offers a Tax Withholding Estimator that can help you calibrate how much is taken out of each paycheck, so next year’s refund reflects what you actually need rather than what you accidentally overpaid.

Whatever the size of your refund this season, the advice from financial planners is the same: make a plan before the money arrives. Without one, it tends to disappear faster than it came.